South Africa’s Medium Term Budget Policy Statement (MTBPS) will be presented on Wednesday, 30 October. The context in which the MTBPS has improved considerably as several developments have occurred since the Minister of Finance tabled the Budget Review in February 2024. At the time, years of weak growth and SOE bailouts culminated in rising debt servicing costs and government debt, and South Africa was teetering on a fiscal cliff.
- Utilising GFECRRA settlement balances of R150bn has sidestepped a fiscal cliff and bought time for implementing structural reforms to revive economic growth.
- The formation of the Government of National Unity (GNU) has reduced political uncertainty, allowed for fiscal continuity, and raised hope for acceleration in economic reform momentum.
- The FOMC has started its rate-cutting cycle (although the pace of cuts and terminal rate are uncertain), and the USD index has depreciated. This allows EM central banks to cut interest rates as foreign capital flows return to EM.
- Government bond yields and the rand have re-rated, which could lead to marginal downward revisions in debt servicing costs and government debt projections.
- Commitment to a primary budget surplus will be highlighted. However, there is less certainty as to whether a fiscal anchor in February 2025 could be announced as the ANC has rejected the proposal.
Key focus points
Minor deviations are expected regarding the F24/25 expenditure forecast, where the contingency reserve could absorb spending pressures. Revenue receipts are behind target, which raises the importance of the magnitude of the drawdown of the two pot retirement savings, as they are taxed at the marginal tax rate. A key focus point will be on progress in legislative and regulatory reforms in the network industries and financing. Changes to the PPP framework are awaited, as the private sector’s involvement in infrastructure investment in electricity generation, transmission, freight and ports, and water industries is the key to raising South Africa’s growth trajectory. Financial and operational challenges at municipalities are of major concern, with weak service delivery and a deterioration in infrastructure taking a toll on business.
National Treasury has built up considerable cash balances due to switch auctions of an inflation-linked bond that matures in January 2025. This provides a buffer if revenue or expenditure outcomes do not meet the target but also raises the possibility that SAGBs on offer at weekly auctions could be reduced. However, we think this is unlikely at this stage. Fiscal projections for F25/26, presented in February 2025, will be the key driver.